What is the Form W-2?
The W-2 form is the form that an employer must send to an employee and the Internal Revenue Service (IRS) at the end of each year. The W-2 form is the official Wage and Tax Statement that reports an employee’s annual wages and the amount of taxes withheld from their paycheck.
If you work for an employer, then your employer withholds income taxes from each of your paychecks. That’s because both federal and most state governments collect income tax year-round, not just on April 15, 2021 (the tax filing deadline for tax year 2020).
Every January or early February, you should receive a Form W-2 Wage and Tax Statement from your employer that lists exactly how much money you made the previous year, how much went to tax withholdings and how much of it went to federal taxes as well as state taxes.
As per the IRS, Form W-2 is called an informational return because it informs several important parties about your earnings and amount of taxes paid for the year:
- the federal government
- your state (and your city and local) government
- and you!
Form W-2 is one of those forms that you, the taxpayer, don’t have to fill out; your employer provides all of the information on the form. In fact, your employer has to mail you, the IRS and your state the Form W-2 by January 31 or face a W2 filing penalty.
Note: you are required to attach your copy of your Form W-2 to your tax return. If you e-file using TaxAct then your Form W-2 information is sent along with your tax return. However, if you are filing your tax return by mail, then you must include a copy with your return.
The anatomy of Form W-2
Form W-2 proves very useful when you file your Form 1040 income tax return.
Box number 1 contains your gross wages, tips and other compensation for the year. Boxes 2 and 17 tell you how much money was withheld in federal and state income tax, respectively, for the year.
The number from box 1, your income, is reported on line 7 of your Form 1040. Federal taxes withheld in box 2 is reported on line 62 of your 1040.
Here’s a detailed look at each box of Form W-2
Starting with the boxes on the left:
Box a: Reports your Social Security number. Ensure this is correct. An incorrect SSN can delay the processing of your tax return.
Box b: Your employer’s EIN (Employer Identification Number) is reported in box b. An EIN is a nine-digit number assigned to your employer by the IRS and used to identify the tax accounts of employers.
Box c: Reports the legal address of your employer. This may or may not be the actual address of where you work, depending if your employer has multiple offices with a corporate site.
Box d: Reports the control number used by your employer’s payroll department. This may or may not be blank.
Box e and f: Your legal name, as it reads on your Social Security card, appears in box e and your mailing address is reported in box f. Double-check both of these are correct. If that information is incorrect, it could delay the processing of your return.
Here’s a closer look to the boxes on the right:
Box 1: Shows your total taxable wages, tips, prizes and other compensation for the year, minus certain elective deferrals, such as 401(k) plans, pretax benefits and payroll deductions.
Box 2: Reports the total federal income tax withheld from your pay during the year. This amount is based on the number of exemptions claimed on your Form W-4. If you’d rather keep more money in your paycheck each week, you’ll want to adjust your Form W-4 for the next year.
Box 3: Shows your total wages that are taxed for Social Security.
Box 4: The total Social Security taxes withheld from your pay for the year. Unlike federal income taxes, Social Security taxes are calculated based on a flat rate of 6.2%.
Box 5: This indicates all your wages and tips that are taxed for Medicaid.
Box 6: The total amount of Medicare tax withheld from your pay for the year. Much like Social Security taxes, Medicare taxes are also figured on a flat rate, which is 1.45%.
Box 7: This shows any tips that you reported.
Box 8: This shows any allocated tips that your employer has figured attributable to you. These are considered as income.
Box 9: This is blank, as this requirement has expired. It’s currently in the process of being removed from the form W-2.
Box 10: Reports the total amount deducted from your wages for dependent care assistance programs. It may also include contributions made by your employer for dependent care on your behalf.
Box 11: Reports the total amount distributed to you from your employer’s non-qualified deferred compensation plan.
Box 12: Reports several different types of compensation and benefits. It will indicate a single or double letter code followed by a dollar amount. Here’s what those codes mean:
A – Uncollected Social Security or RRTA tax on tips
B – Uncollected Medicare tax on tips (but not Additional Medicare Tax)
C – Taxable cost of group-term life insurance over $50,000 (included in your wages in boxes 1, 3 and 5)
D – Elective deferrals to a section 401(k) cash or deferred arrangement plan (including a SIMPLE 401(k) arrangement)
E – Elective deferrals under a section 403(b) salary reduction agreement
F – Elective deferrals under a section 408(k)(6) salary reduction SEP
G – Elective deferrals and employer contributions (including nonelective deferrals) to a section 457(b) deferred compensation plan
H – Elective deferrals to a section 501(c)(18)(D) tax-exempt organization plan
J – Nontaxable sick pay
K – 20% excise tax on excess golden parachute payments
L – Substantiated employee business expense reimbursements
M – Uncollected Social Security or RRTA tax on taxable cost of group-term life insurance over $50,000 (former employees only)
N – Uncollected Medicare tax on taxable cost of group-term life insurance over $50,000 (but not Additional Medicare Tax) (former employees only)
P – Excludable moving expense reimbursements paid directly to employee
Q – Nontaxable combat pay
R – Employer contributions to an Archer MSA
S – Employee salary reduction contributions under a section 408(p) SIMPLE plan
T – Adoption benefits
V – Income from exercise of non-statutory stock option(s)
W – Employer contributions (including employee contributions through a cafeteria plan) to an employee’s health savings account (HSA)
Y – Deferrals under a section 409A non-qualified deferred compensation plan
Z – Income under a non-qualified deferred compensation plan that fails to satisfy section 409A
AA – Designated Roth contributions under a section 401(k) plan
BB – Designated Roth contributions under a section 403(b) plan
CC – HIRE exempt wages and tips (2010 only)
DD – Cost of employer-sponsored health coverage
EE – Designated Roth contributions under a governmental section 457(b) plan
Box 13: Your employer checks the applicable box that pertains to you as an employee. Statutory employee means employees whose earnings are subject to Social Security and Medicare taxes but not federal income tax withholding. Retirement plan means you participated in your employer’s retirement plan during the year. Third-party sick pay means you received sick pay under your employer’s third-party insurance policy.
Box 14: Reports anything that doesn’t have a specific box anywhere else on Form W-2 in box 14.
Box 15: Includes your employer’s state and state tax identification number.
Box 16: Indicates the total amount of taxable wages for state tax purposes, if you are subject to state income taxes.
Box 17: Shows the total amount of state taxes withheld from your wages for the year.
Box 18: If you are subject to local, city or other state income taxes, box 18 reports those wages.
Box 19: Reports the total amount withheld from your wages for local, city or other state income taxes.
Box 20: Is the legal name of the local, city or other state tax being reported in box 19.
All of the information on your Form W-2 helps determine whether you owe more taxes or whether you receive a tax refund when filing your taxes.
If you find that you regularly have a big tax bill in April, you may want to adjust your tax withholdings. This is done using Form W-4.
You probably filled out a Form W-4 on your first day at work. Talk to your human resources department about lowering your number of exemptions or adding an elective withholding. You can also use the TaxAct W-4 Calculator to see how changes to your withholding allowances affect your refund and paycheck.
If you have the opposite problem — a big tax refund each April — then you are withholding too much from each paycheck.
Make sure your dependents are entered accurately.
Not every taxpayer receives a Form W-2
Freelancers and independent contractors receive Form 1099-NEC, another kind of informational return for “non-employee compensation.” This form is new for tax year 2020 as all income earned by independent contractors or freelancers in prior years was reported on Form 1099-MISC.
There are other types of 1099 returns for investment income like capital gains, dividends and interest – all of which count as income.